When the owner of a successful surveying business got into difficulties with his income tax liabilities it was recommended he speak to Andy Gait at Gould Financial Planning.The surveying business had made considerable profits and as the owner was a self-employed sole trader he was looking at an income tax liability of more than £76,000 for the tax year ending 5th April 2014, and he needed to look at ways of reducing that figure.

On the face of it, the problem looked relatively easy to solve via a pension contribution. However, the owner not only didn’t have the liquid cash available to make the pension contribution, but he was also concerned about making his tax payment at the end of January and July 2014.

On carrying out a full analysis of his assets, Andy and his team at Gould Financial Planning identified the potential to use a commercial premises valued at £140,000 and four pension schemes, valued in total at approximately £300,000, to help reduce the tax bills.

The owner’s existing pensions were transferred to a Self-Invested Personal Pension (SIPP), and the commercial premises sold to the SIPP for £140,000. There was no capital gains tax as the profit made on the property was only £10,000 and within the annual exemption of £11,000. There was also no stamp duty to pay as the value was below the threshold.

The business owner received £140,000 and immediately made a contribution to his SIPP of £100,000. Once basic rate tax relief was added the SIPP received a total payment of £125,000. The tax liability for tax year 2013/14 was reduced from £76,000 to £47,000. The effective tax relief the owner received on his pension contribution of £100,000 was 54%, and the remaining £40,000 of the property sale proceeds was used to settle his tax bills.

The owner was also referred to Kilsby & Williams Chartered Accountants to restructure his business to a limited company. He already employed his wife in the business and they both became equal shareholders, resulting in future tax liabilities being reduced considerably.